As I've posted in the past, it takes years to learn and despite popular opinion venture capital still remains a cottage industry. As soon as markets heat up, everyone seems to forget just how difficult of a business it really is. Notwithstanding what the Midas List and many individuals lead you to believe, venture capital (and private equity) is very much a team sport. After all, company building is undoubtedly a team sport and investors are just one sub-component of that team.

In the context of this essay, my definition of venture capital firm is a one that would manage individual funds of at least $80 million to $300 million (anything smaller than that is generally less institutional and anything larger than that is a practically a corporate entrenched entity). Such firms would be lead institutional lifecycle investors and therefore would likely exclude high volume high velocity seed investment platforms that operate more like individual angels. And most of their target investments would be early-stage or micro-cap (likely less than 200 employees).

There is so much that goes into building a world-class long-lasting firm in this segment. So, setting aside timing and luck, a good place to start is getting the right personalities on the team. No personality is without its downsides, but here are the ones that I think are needed. Keep in mind that these may not be individual people. Some people may carry several or all of these traits.

A killer VC/PE investment team should have the following traits.

1. The Promoter / Salesperson

In any business organization, sales is the department that generates revenue. And it’s certainly true in venture capital. The rubber meets the road when it’s time to win a deal and/or when it’s time for a firm to raise new funds. That’s where the Salesperson is key. Capital is a commodity and great investors need to know how to source and win over opportunities to invest. Great companies often have their choice of investment partners and selling them your value versus others is paramount to getting deals done. Entrepreneurs, in the case of venture capital, or sellers & management, in the case of private equity need to be sold by their future investment partner that together they can build something extraordinary. Additionally, and in many ways more critically, VC/PE firms need to be able to sell their own product to institutional investors (LPs). Small cap PE and VC are alternative investment products investors that compete with others like fixed income, large cap equities, commodities, etc for share of wallet.

Why you need them: Well, frankly, everything in life is about selling, right? Without people who live & breathe the art of the sale, it would be next to impossible to raise funds, sell product, and get deals done. This trait is tantamount to a successful investment firm, which is why it’s listed first, but it also requires balance. Without the discipline of the following other traits, then this trait would be relegated to peddling used cars.

2. The Researcher / Strategist

The strategist is a data-driven visionary. They carefully watch and study the latest trends with the goal of understanding what will last and why. Generally a voracious reader, no research piece goes unread or panel ignored. In bull markets, every opportunity looks great, and, in bear markets, every opportunity is a dog. To optimists, things can only go right, and to pessimists, things can only go wrong. The Researcher is a pragmatist that considers all of the data and every possible nuanced scenario. The Researcher uses information to assess & evaluate investment opportunities rather than just merely following momentum. This trait is one that in its perfect incarnation uses second-level thinking to create unique & outstanding investment returns.

Why you need them: There are millions of possible companies to invest in, and there is something for everyone. Coupled with a thoughtfully crafted investment thesis, having a disciplined view on markets, valuation, sectors, landscape, and dozens of other inputs can push the team to think outside the box and encourage people to go out on a limb and take appropriately risk adjusted bets. While a lot of ideas may be exciting, the Researcher brings a steady dose of discipline to the table that helps focus a team leading to better returns.

3. Tough Cop / Controller

Investing is a tough business, a very cut-throat business, it’s not a business for the feeble hearted. After all, the primary goal of a VC/PE firm is to make money, generate returns. Term sheets are riddled with pages & pages of clauses structured to decrease downside, augment control, and increase returns. All while the Salesperson will do anything to close a sale, the Tough Cop makes sure that the deal is a good one for the fund. For every good cop, there needs to be a bad cop. Furthermore, during the lifetime of an investment, things go wrong and difficult actions often need to be taken. The Tough Cop embraces challenging decisions and contentious negotiations when not everyone is aligned.

Why you need them: All too often investment teams can fall into a habit of sugar coating the problems within a portfolio and letting things slip that wouldn’t pass muster during initial reviews. The Tough Cop helps keep everyone accountable and makes it less likely that the team will develop bad habits. They are reliable, dedicated and level headed, with a killer instinct for cutting through bullshit to get to the heart of a problem.

4. Consigliere / Board Member

Being a great board member is a unique skill, more involved than an advisor but not as involved as a manager. Many entrepreneurs-turned-investors struggle with the role of an investor board member as they can’t get in the weeds from the board room. The Consigliere spends more time listening than talking and is an encouraging coach to the CEO and management team. Boards of companies are generally comprised of incredibly varying interests with the overarching responsibility of governing a unified set of goals. The Consigliere has the trust of the CEO and that of other board members to lead the board room and company in a singular direction. They can balance being the first call for advice from the CEO and yet providing disciplined oversight on management execution.

Why you need them: The process of board governance is messy business. There are multitudes of stakeholders to satisfy, a CEO’s vision to maintain, financial targets to hit and expectations to manage. The Consigliere knows the playing field and the players and is adept at navigating the board room. Ultimately, the Consigliere builds a deep relationship with the company such that the VC/PE firm has unfettered & immediate access to important company information.

5. Operator / Turnaround Specialist

In the world of investing, just like in life, not everything works out the way it is supposed to. Companies go sideways, people mess up, things change, and stuff needs fixing. Within every portfolio, investors have to face with the difficult job of replacing the management & leadership that they once had conviction to invest in. And often that can happen very quickly, so the ability to step in to a company, fix things, and run it for a period is where the Operator comes in. The Operator can help turn a terrible investment in to something salvageable and in some cases a success again. Not only is this Operator helpful during turnaround situations but this general skill can be helpful in identifying management team gaps and organizational challenges prior to making an investment.

Why you need them: Over the course of an investment it is inevitable that something is going to blow up. Management doesn’t scale with the organization, the competitive landscape changes, the product starts to lag, and if not addressed quickly, those things can completely derail an investment. Fortunately, if you’ve got an Operator on your team, you can rest easy. When the shit hits the fan, the Operator can step in to keep the ship on course.

As I've posted in the past, it takes years to learn and despite popular opinion venture capital still remains a cottage industry. As soon as markets heat up, everyone seems to forget just how difficult of a business it really is. Notwithstanding what the Midas List and many individuals lead you to believe, venture capital (and private equity) is very much a team sport. After all, company building is undoubtedly a team sport and investors are just one sub-component of that team.

In the context of this essay, my definition of venture capital firm is a one that would manage individual funds of at least $80 million to $300 million (anything smaller than that is generally less institutional and anything larger than that is a practically a corporate entrenched entity). Such firms would be lead institutional lifecycle investors and therefore would likely exclude high volume high velocity seed investment platforms that operate more like individual angels. And most of their target investments would be early-stage or micro-cap (likely less than 200 employees).

There is so much that goes into building a world-class long-lasting firm in this segment. So, setting aside timing and luck, a good place to start is getting the right personalities on the team. No personality is without its downsides, but here are the ones that I think are needed. Keep in mind that these may not be individual people. Some people may carry several or all of these traits.

A killer VC/PE investment team should have the following traits.

1. The Promoter / Salesperson

In any business organization, sales is the department that generates revenue. And it’s certainly true in venture capital. The rubber meets the road when it’s time to win a deal and/or when it’s time for a firm to raise new funds. That’s where the Salesperson is key. Capital is a commodity and great investors need to know how to source and win over opportunities to invest. Great companies often have their choice of investment partners and selling them your value versus others is paramount to getting deals done. Entrepreneurs, in the case of venture capital, or sellers & management, in the case of private equity need to be sold by their future investment partner that together they can build something extraordinary. Additionally, and in many ways more critically, VC/PE firms need to be able to sell their own product to institutional investors (LPs). Small cap PE and VC are alternative investment products investors that compete with others like fixed income, large cap equities, commodities, etc for share of wallet.

Why you need them: Well, frankly, everything in life is about selling, right? Without people who live & breathe the art of the sale, it would be next to impossible to raise funds, sell product, and get deals done. This trait is tantamount to a successful investment firm, which is why it’s listed first, but it also requires balance. Without the discipline of the following other traits, then this trait would be relegated to peddling used cars.

2. The Researcher / Strategist

The strategist is a data-driven visionary. They carefully watch and study the latest trends with the goal of understanding what will last and why. Generally a voracious reader, no research piece goes unread or panel ignored. In bull markets, every opportunity looks great, and, in bear markets, every opportunity is a dog. To optimists, things can only go right, and to pessimists, things can only go wrong. The Researcher is a pragmatist that considers all of the data and every possible nuanced scenario. The Researcher uses information to assess & evaluate investment opportunities rather than just merely following momentum. This trait is one that in its perfect incarnation uses second-level thinking to create unique & outstanding investment returns.

Why you need them: There are millions of possible companies to invest in, and there is something for everyone. Coupled with a thoughtfully crafted investment thesis, having a disciplined view on markets, valuation, sectors, landscape, and dozens of other inputs can push the team to think outside the box and encourage people to go out on a limb and take appropriately risk adjusted bets. While a lot of ideas may be exciting, the Researcher brings a steady dose of discipline to the table that helps focus a team leading to better returns.

3. Tough Cop / Controller

Investing is a tough business, a very cut-throat business, it’s not a business for the feeble hearted. After all, the primary goal of a VC/PE firm is to make money, generate returns. Term sheets are riddled with pages & pages of clauses structured to decrease downside, augment control, and increase returns. All while the Salesperson will do anything to close a sale, the Tough Cop makes sure that the deal is a good one for the fund. For every good cop, there needs to be a bad cop. Furthermore, during the lifetime of an investment, things go wrong and difficult actions often need to be taken. The Tough Cop embraces challenging decisions and contentious negotiations when not everyone is aligned.

Why you need them: All too often investment teams can fall into a habit of sugar coating the problems within a portfolio and letting things slip that wouldn’t pass muster during initial reviews. The Tough Cop helps keep everyone accountable and makes it less likely that the team will develop bad habits. They are reliable, dedicated and level headed, with a killer instinct for cutting through bullshit to get to the heart of a problem.

4. Consigliere / Board Member

Being a great board member is a unique skill, more involved than an advisor but not as involved as a manager. Many entrepreneurs-turned-investors struggle with the role of an investor board member as they can’t get in the weeds from the board room. The Consigliere spends more time listening than talking and is an encouraging coach to the CEO and management team. Boards of companies are generally comprised of incredibly varying interests with the overarching responsibility of governing a unified set of goals. The Consigliere has the trust of the CEO and that of other board members to lead the board room and company in a singular direction. They can balance being the first call for advice from the CEO and yet providing disciplined oversight on management execution.

Why you need them: The process of board governance is messy business. There are multitudes of stakeholders to satisfy, a CEO’s vision to maintain, financial targets to hit and expectations to manage. The Consigliere knows the playing field and the players and is adept at navigating the board room. Ultimately, the Consigliere builds a deep relationship with the company such that the VC/PE firm has unfettered & immediate access to important company information.

5. Operator / Turnaround Specialist

In the world of investing, just like in life, not everything works out the way it is supposed to. Companies go sideways, people mess up, things change, and stuff needs fixing. Within every portfolio, investors have to face with the difficult job of replacing the management & leadership that they once had conviction to invest in. And often that can happen very quickly, so the ability to step in to a company, fix things, and run it for a period is where the Operator comes in. The Operator can help turn a terrible investment in to something salvageable and in some cases a success again. Not only is this Operator helpful during turnaround situations but this general skill can be helpful in identifying management team gaps and organizational challenges prior to making an investment.

Why you need them: Over the course of an investment it is inevitable that something is going to blow up. Management doesn’t scale with the organization, the competitive landscape changes, the product starts to lag, and if not addressed quickly, those things can completely derail an investment. Fortunately, if you’ve got an Operator on your team, you can rest easy. When the shit hits the fan, the Operator can step in to keep the ship on course.

To laugh often and much; to win the respect of intelligent people and the affection of children; to earn the appreciation of honest critics and endure the betrayal of false friends; to appreciate beauty; to find the best in others; to leave the world a bit better, whether by a healthy child, a garden patch or a redeemed social condition; to know even one life has breathed easier because you have lived. This is to have succeeded. -Ralph Waldo Emerson, writer and philosopher (1803-1882)